Local steel industry remains on the brink of implosion: Why is government not helping?

Local steel manufacturer, Duferco, has again raised the red flag over the local steel industry, saying its imminent collapse is one fateful step closer. Ludovico Sanges, MD of Duferco Steel Processing, says that President Ramaphosa’s emphasis in his recent State of the Nation Address on the need to accelerate South Africa’s economic recovery and grow jobs is at odds with the way in which local steel manufacturers’ pleas for help are being ignored.

“The President specifically mentions steel products as one of the 42 products that can be sourced locally but the local industry is literally on the brink of catastrophe due to the shortage of steel in South Africa and the apparent unwillingness of the International Trade Administration Commission (ITAC) to treat our urgent application for assistance dating from July 2020 with any seriousness,” says Sanges.

“ITAC recently sent out a survey on the shortages, based on a directive from the Minister of Trade, Industry and Competition but the truth is that we cannot hold out too much longer. ITAC has sent similar requests to the industry before but this latest request serves only as a delay tactic which does nothing to address ArcelorMittal South Africa’s anti-competitive and monopolistic behaviour.”

Ludovico Sanges, MD of Duferco Steel Processing

“The solution, which has been on the table for months, is to provide tariff relieve for re-rollers to help reduce the shortages in the local steel supply chain, yet ITAC’s drive to identify a new solution does not address the critical downstream shortages. We need tariff relief now to be able to import the raw product that AMSA cannot supply reliably and competitively, to feed the downstream steel industry with the product it needs.”

Sanges says that the nub of the matter is the uncompetitive nature of the local steel industry, in which ArcelorMittal South Africa (AMSA) is both the producer of the raw product (hot rolled coil steel) and the competitor of re-rollers’ finished product used by the downstream industry.

Duferco was originally created as a joint venture by the IDC and Switzerland-based Duferco International Trading Holdings to re-roll the hot rolled coil steel produced by Saldanha Steel, at that stage not part of AMSA. Duferco supplied the export market but when Saldanha Steel merged with AMSA, the Competition Tribunal opened up the local market to Duferco, putting it in competition with AMSA which, as noted, also produces re-rolled steel from its basic hot rolled coil (HRC) steel.

The closure of Saldanha Steel’s plant in early 2020 meant that the local steel industry had to rely on AMSA’s Vanderbijlpark plant, which is a much older and less reliable facility, for flat steel product. In addition, the closure of Saldanha Steel caused the loss of 1 000 direct and 1 800 to 2 200 indirect jobs.

Sanges says there are several factors which led to the closure of Saldanha Steel.

“AMSA listed various factors that made Saldanha Steel unsustainable, but it is difficult to believe that such a recent steel unit, financed by government, built and installed by accredited companies under Iscor’s technical supervision, is unsustainable and shutting down after only 22 years in favour of an old, unreliable, expensive plant in Vanderbijlpark. We believe the problem is mainly a marketing one: Saldanha Steel was to convert iron ore into HRC to be utilised by Duferco, with the balance to be exported worldwide aimed at penetrating wealthier markets. The deviation from the original plan, decided by AMSA, limited export in Southern and East Africa resulting in competition from other countries without the benefit of duties protection. AMSA’s marketing strategy probably did not allow interference in the countries where the group has production facilities which precludes access to affluent market like the USA, Europe and South America.”

Nor can the re-roller industry import raw product because of tariffs designed to protect AMSA.

“The local steel industry thus finds itself with only one supplier of raw product that cannot meet demand, and re-rollers are unable to access imported raw product at competitive prices. And if Duferco and other re-rollers go to the wall, as seems possible, the downstream steel industry will continue to face shortages and will be entirely at the mercy of one re-roller,” says Sanges.

“Without competition in the re-roller sector of the steel industry, the whole steel value chain will be compromised and prevented from producing product at the best possible price. The South African steel industry is only able to sell in South Africa without any possibility or opportunity to export due to high prices applied by the primary steel manufacturer. As such the downstream industry cannot even think to expand operations or exports. On the contrary, there are strong likelihoods of total closures or relocations of local manufacturing business to neighbouring countries which have a more favourable framework. Because steel is so central to any economy, the knock-on effects on plans for economic revival will be significant.”

“Government has shown that it can play a hugely positive role in nurturing the automotive industry as it has done with the sugar sector – why is it not taking the same proactive approach to the steel industry on which multiple industries rely?”

This is the viewpoint of Ludovico Sanges, MD of Duferco Steel Processing